The Ukraine-Russia war and the consequent deepening of supply chain disruptions has driven a surge in the prices of various commodities, with natural gas prices among them. For the week ended April 1, natural-gas inventories stood at approximately 17% below their five-year average in the U.S., with the Energy Information Administration pegging U.S. reserves at 1.382 trillion cubic feet.
Also, according to data from the Energy Information Administration, the surge in energy prices has come as average weekly Central Appalachia coal prices, the U.S. benchmark for Eastern coal, stood at $106.15 per short ton on April 1, up to $8.85 from a week ago and at its highest price since 2008. The rise in coal prices has led to higher demand for natural gas. Rob Thummel, a portfolio manager at Tortoise, said natural-gas prices are "sensitive to any near-term supply concerns created by events like a ban on Russia coal exports, abnormally cold weather," or Russian natural-gas export issues, given tight global supplies.
Investors' interest in this space is evident from the United States Natural Gas Fund, LP's (UNG) 37.5% return over the past month. Given this backdrop, we think it could be profitable to invest in fundamentally sound stocks DCP Midstream, LP (DCP) and Western Midstream Partners, LP (WES).
DCP Midstream, LP (DCP)
DCP in Denver, Colo., together with its subsidiaries, owns, operates, acquires, and develops a portfolio of midstream energy assets in the United States. It has two operational segments: Logistics and Marketing; and Gathering and Processing. The Logistics and Marketing segment is engaged in transporting, trading, marketing, and storing natural gas and natural gas liquids (NGLs) and fractionating NGLs. The Gathering and Processing segment participates in gathering, compressing, treating, and processing natural gas, producing and fractionating NGLs, and recovering condensate.
During the fourth quarter, ending Dec. 31, 2021, DCP's total operating revenue increased 94.8% year-over-year to $3.48 billion. Its operating income grew 460% from its year-ago value to $252 million, while its net income attributable to partners improved 266.3% from its prior-year quarter to $315 million.
Analysts expect its revenue to increase 42.3% year-over-year to $3.30 billion for the first quarter, ending March 31, 2022. The $0.90 consensus EPS estimate for the first quarter, ending March 31, 2022, represents a 376.1% improvement year-over-year. The company's shares have surged 53.4% in price over the past year and 24.9% year-to-date.
DCP's POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
The stock also has an A grade for Momentum and a B for Value and Sentiment. Within the A-rated MLPs - Oil & Gas Industry, it is ranked #7 of 35 stocks.
To see additional POWR Ratings for Growth, Stability, and Quality for DCP, click here.
Western Midstream Partners, LP (WES)
WES, a midstream energy company, acquires, owns, develops, and operates primarily in the United States. It is engaged in gathering, compressing, treating, processing, and transporting natural gas; gathering, stabilizing, and transporting condensate, natural gas liquids (NGLs), and crude oil; and gathering and disposing of produced water. WES is headquartered in The Woodlands, Tex.
In the fourth quarter, ending Dec/ 31, 2021, WES' total revenue and others increased 11.1% year-over-year to $719.21 million. Its operating income amounted to $325.72 million, while its net income attributable to WES came in at $243.52 million. The company's EPS was $0.58 for the period.
The $0.61 consensus EPS estimate for the first quarter, ending March 31, 2022, represents a 27.9% improvement year-over-year. Analysts expect WES' revenue to increase 4% year-over-year to $701.95 million for the first quarter, ending March 31, 2022.
The company's shares have surged 26% in price over the past year and 20.4% over the past nine months.
WES' strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. The stock also has an A grade for Momentum and a B for Stability and Quality. Within the Gas industry, it is ranked #10.
In total, we rate WES on eight distinct levels. Beyond what we have stated above, we have also given WES grades for Growth, Sentiment, and Value. Get all the WES ratings here.
DCP shares were trading at $34.07 per share on Monday morning, down $0.25 (-0.73%). Year-to-date, DCP has gained 25.56%, versus a -6.57% rise in the benchmark S&P 500 index during the same period.
About the Author: Spandan Khandelwal
Spandan's is a financial journalist and investment analyst focused on the stock market. With her ability to interpret financial data, she aims to help investors evaluate the fundamentals of a company before investing.
2 Stocks to Buy as Natural Gas Prices Soar to 13-Year Highs StockNews.com
